Schwarzenegger Fiscal-repairman Image Defined By Budget Deficit
The Republican governor, 62, who cant seek re-election because of term limits, convinced the Democratic-controlled Legislature twice this year to cut $32 billion in spending and increase taxes by $12.5 billion. A $1.1 billion drop in tax revenue disclosed last week may force a third budget fix.
“Most of his last couple years have been basically dominated by this horrendous budget problem, and everything got swamped in that, even the most simple stuff,” said Christopher Thornberg, principal of Beacon Economics LLC, a research and consulting firm in Los Angeles. “Had times been more ordinary, he may very well have had more success in trying to accomplish what he was doing.”
Schwarzenegger is trying to change the way the state collects revenue in order to end the persistent deficits that have plagued his six years in office, said David Crane, a special adviser to the governor on jobs and economic growth.
“We had real growth in California in 2008, but our budget revenues were down 20 percent,” Crane said in an interview. “And thats because we have a budget system thats not correlated with our economy.”
About half of the states personal income tax revenue, which finances 50 percent of the California governments general fund, comes from 144,000 taxpayers, or about 1 percent of the total, Crane said.
Paying With IOUs
Since February, lawmakers and Schwarzenegger have faced projected budget deficits of $60 billion covering the two years ending in June 2010. California, where unemployment reached 12.2 percent in August, was so short of cash as it confronted the worst economic slump since the Great Depression that it paid some vendors and tax refunds with IOUs from June through September.
The Legislature, which requires a two-thirds vote to raise taxes or pass a new spending plan, has struggled to respond as the states fiscal strains worsened this year.
In addition to spending cuts and tax increases, Schwarzenegger and lawmakers agreed to cover $6 billion of the deficit with borrowing and what Pacific Investment Management Co.s Bill Gross, co-chief investment officer of the worlds biggest bond fund, in an online commentary this month, called “accounting tricks that couldnt fool a grade-schooler.”
Even with those actions, budget officials predict an additional $38 billion in deficits in the next three fiscal years, including $7.4 billion in the year starting July 1.
Tax Reform
That plan wouldnt affect the states total receipts. If it passes along with other measures proposed by Schwarzenegger, then “youd have a radically different state” than when he first took office, Crane said.
“Everyone, no matter who they are, acknowledges that we need to reform our tax structure,” said Barbara OConnor, director of the Institute for the Study of Politics and Media at California State University in Sacramento, in an interview. “The question is how. He seems to be the only one who wants to give it a chance.”
Aaron McLear, a spokesman for Schwarzenegger, said the governor wasnt immediately available to comment.
Eighth-Largest Economy
California, which has the worlds eighth-largest economy and accounts for 13 percent of the U.S. gross domestic product, sold $4.1 billion in bonds last week while possessing a Standard & Poors A rating, the lowest among U.S. states.
The states debt totaled $67.1 billion, according to Treasurer Bill Lockyer. California accounts for $50 billion in bond issuance this year out of a U.S. total $281 billion, according Bloomberg data.
Schwarzenegger, a former body builder and actor better known for his role as a time-traveling robot in the “Terminator” movie series than for his public-policy views when he campaigned for governor in 2003, bested more than 100 other candidates as part of a recall effort that ousted Democrat Gray Davis as governor.